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Crypto: Buyers Beware!

Worth contributor Jonathan Russo gives us his take on the crypto craze—plus, we’re auctioning off our first NFT.

NFT Crypto Tulips Crypto Tulips

It’s here, we did it. Yes, it’s Worth‘s first NFT.

Despite the current crypto craze, Worth contributor Jonathan Russo is skeptical that investors will achieve the goals they seek. However, the NFT graphic of crypto tulips accompanying this piece is, indeed, for sale via auction. The graphic could even become a collector’s item to remember the crypto craze many years from now—plus, 20 percent of the final auction price will go to Smile Farms as a charitable contribution. 

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Some instructions for those who are not familiar with NFTs or crypto auctions can be found in links below the article. The auction ends on May 31.

One of the noticeable side effects of having followed financial markets for almost a half century is I remember things, like the 1960-70s “Nifty Fifty”—list of can’t-lose blue chip stocks that were meant to be held forever. As the valuations got absurd, and the buy-side recommendations became shriller, they went up and up. Until…they fell hard. Some, like Xerox, declined 71 percent, which wasn’t bad when compared to Avon’s 86 percent loss and Polaroid’s unimaginable 91 percent tumble. Before they fell, everyone loved them.

A few decades later, I vividly recall the technology bubble of 2000, during which I created and invested in a startup that was funded by oodles of silly liquidity. For years, cocktail party chatter (the internet of its time) focused on the killings being made in NASDAQ stocks.

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Simultaneously, my business partner demanded we invest in the tech sector…Our highly rated mutual fund fell 85 percent within a year. 

A small list of other highflyers, and their subsequent reverse side of parabolic rise, can be found here.

The housing market mania of the new century was another tragic event for many. A friend borrowed against her Los Angeles home to buy another, then, in sequence, leveraged nine more houses before her real-estate empire collapsed like the, pun intended, house of cards it was. Bankrupt, she lost the home she’d lived in for decades.

Recently, there have been hundreds of other tiny bubbles that have seen individual stocks like GoPro (GPRO), which went from $90 to $12, collapse.

However, the granddaddy of all bubbles, the one considered the historic lodestone, was the early 18th century’s South Seas Bubble. The most recent and gripping account imaginable can be found in Thomas Levenson’s book Money for Nothing. The decade-long ramp-up, beginning in 1711, of debt, fraud, corruption and mass delusion that engulfed England and the continent is a tale of horrific losses well told. It should be required reading before your purchase anything crypto.

What underlies these manias? I dub it “reverse capitulation.” Investing capitulation, for those needing a primer, is when all investors throw in the towel. They collectively give up, resigned to the fact that their assets will never recover. It is better to sell and move on. When the last person sells, capitulation is complete, the bottom is formed.

“Reverse capitulation” is when everyone is positive. You don’t hear a negative voice. It’s buy, buy, buy.

As for DeFi, there’s nothing new here. It’s monetary anarchy not unlike when the 13 colonies each issued their own coins and bills. A hundred years later, around 1860, there were 8,000 “currencies” issued by municipalities, railroads, private banks, churches, stores and even individuals. If DeFi reaches anything near critical mass, everyone will be begging for a single unified currency to untangle the mess.

Today, headline after headline reads like this: “How Much of Your Portfolio Should Be in Crypto?” or “Beyond Bitcoin, the Blockchain Is Here to Stay.” So, it is assumed crypto belongs in your portfolio, and blockchain (which, by the way, is just an update of double-entry bookkeeping—invented by Italians in 1494) has some underlying value other than to accountants. When legendary value investor Bill Miller OKs crypto, you know the top is near. Bitcoin is heading to $500,000…to a million…to the moon! This is classic bubble silly talk. Just like another legendary mania, the Dutch Tulip hysteria of 1637 (see illustration at top of article.)

That is where we are now with crypto’s prominence in the collective consciousness. Allow me to sound a skeptical voice. Crypto is a collectible. It is a currency in the same way that wampum was a currency for the Native Americans who agreed smooth shells had a value that could be traded for other things. The problem is that not everyone agrees crypto has a store of value. For the foreseeable future, to complete a transaction, crypto needs to be converted back into a universally acknowledged currency.

What do Riviera Beach, Florida and an Australian woman have in common? Both were badly scammed, and the medium of exchange was Bitcoin. Riviera Beach paid a ransom equivalent to $600,000 in Bitcoin to internet software thieves, while the mother of an ill child in Australia paid thousands to scammers claiming they were MacKenzie Scott’s charity wanting to send her money.

Crypto now serves as the getaway car to countless criminal activities. It will not survive government regulation. Turkey recently had enough of crypto’s negative effects on their exchange rate to ban it. It won’t be the last country to do so.

“In the long run we are all dead” is a famous quote by early 20th century economist John Maynard Keynes. Whenever crypto crashes and investors have losses that can exceed 90 percent, I hear the “I’m in it for the long haul” justification. However, besides death, no one knows what the long haul/run will bring. Perhaps a hundred new quantum computing currencies, ones that will make crypto look like Italian bank notes of the 18th century—fun to look at but utterly worthless.

How does “the long haul” look for coal companies, railroads, AM radio stations or even Myspace? The pace of tech change is accelerating faster than the universe is expanding, so counting on the long haul of anything seems futile.

Buyers beware. Investment history has not been kind to crazes, fads and bandwagon investing. Especially something that has no intrinsic value other than an algorithmic mining scarcity for one particular platform. Anyone can start a token-based currency. There are now over 4,000.

Crypto’s curling waves are dangerous. Don’t get in over your head. Sometimes a little age and historical perspective are not a bad thing.

Interested in Worth’s Crypto Tulips NFT? Check Out the FAQ Below:

 

How can a Worth reader set up a crypto wallet (MetaMask)? 
Read a beginner’s guide here.

How can you purchase ETH with conventional money and have it in your crypto wallet (MetaMask)?
This article give you all the details; please refer to the section: Buying ETH with Fiat. 

What is MetaMask?
MetaMask is both a Chrome extension and an iOS/Android application. You can download MetaMask here.

Are there any other ways readers can bid on this auction?
Worth readers can also send ETH via an exchange, such as Coinbase, via the following on OpenSea: Click on the “Wallet” icon on the top right and add funds by sending money to the address displayed once you click on “Add Funds.” Each wallet has a unique address.

When does the auction end?
The auction ends on May 31.

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